Grain Market Gleanings

Estimated Crop Prices For 2001 Planning
A lot can influence crop prices, yet production and financial planning require that at least tentative decisions be made about what 2001 crops might be worth. Placing a value on the new crop is difficult to do this far in advance, but right now plan on 2001 fourth quarter prices in North Dakota to average about $3.20 for spring wheat and terminal durum, $1.75 for corn, $1.50 for feed barley, $2 for malting barley, $1 for oats, and oilseeds valued at the loan rate, suggests George Flaskerud, NDSU extension crops economist. These planning prices are based on supply and demand analysis, futures prices adjusted for basis, and loan rates.

2001 Canola Marketing
The canola price in Canada is expected to remain about the same, on average, for the 2001-2002 marketing year as for 2000-2001, according to the January forecast by Agriculture and Agri-Food Canada. That forecast implies little change in the area average canola price from this marketing year to the next.

Thus, use spring price rallies to establish price protection on the 2001 canola crop, Flaskerud advises. The low stocks-use ratio of 12% suggests that, while prices may remain low on average, they are likely to be volatile. The month of May is a traditional peak in November canola futures on the Winnipeg Commodity Exchange (WCE).

How should price protection be established? It can be done by contracting, hedging and put options. Contracting or hedging may be the most profitable strategy if prices fall into harvest as expected. Put options have to be purchased, which could make them less profitable if prices fall. If prices rise, however, put options would shine. Because they establish only a price floor, the canola crop could be sold for the higher price.

Put options may be the most appropriate tool this year for preharvest marketing strategies because of the tight level of ending stocks forecast. Unfavorable growing conditions could lead to higher-than-expected prices.

Put options for canola can be purchased on the WCE. Consider using the November contract since it has had a greater volume of trading historically than the September contract.

On May 19, 2000, a November at-the-money put option would have cost 48 cents per hundredweight. On Aug. 18, that option could have been sold for $1.04, a gain of 56 cents.

Additional information on put options and other marketing strategies for canola can be found in Extension Bulletin EB-75, Price Risk Management for Canola producers in the northern Great Plains, available online at http://www.ext.nodak.edu/extpubs/agecon/er/eb-75-a.htm.

Protecting Yourself As A Grain Seller
Though the chance of it happening is remote, the ND Public Service Commission and NDSU Extension Service offer tips to help protect grain sellers in the event of nonpayment,  in a brochure “Selling Grain? Know Your Rights and Your Responsibilities.” It may be found online at http://www.psc.state.nd.us/license frame.htm. Or call (701) 328-4097. The brochure includes advise on handling storage and grading disputes. The ND PSC also includes a list of licensed warehouse or grain buyers online.

The South Dakota Public Utilities Commission web site http://www.state.sd.us/puc/T-WDivision/Warehouse.htm
(ph 1-800-332-1782) offers three similar online publications:

• What Happens To Your Grain After You Deliver It For Sale or Storage
• Storing Grain at Elevators
• Grain Sales Options: Deferred Payment, Delayed Pricing, and Other Voluntary Credit Sales Contracts

Betsy’s Bulls & Bears – Answers To Your Marketing Questions
In hindsight, I should have done more to protect myself from rising energy costs. Is there a way to hedge my energy costs?

There are energy futures that you can use to minimize your exposure to energy costs. Natural gas and heating oil futures are traded on the New York Mercantile Exchange. Natural gas futures are approximately 75% of the costs for nitrogen fertilizer and heating oil futures relate closely to diesel fuel prices.

You do have the opportunity to hedge your costs, but the bad news is the contract size. These futures are not intended for a 2,000 acre farmer, but Northwest Airlines probably hedges their jet fuel using heating oil. The heating oil contract is 42,000 gallons (100 barrels) and natural gas is 10,000 million BTU’s. The initial margin required per contract is $4050, and you’ll have to add to that if the market moves against you.

A few marketing groups have pooled together to hedge their energy costs because the contracts are just too big for an individual farmer. This is great opportunity for members of a marketing group to work together to lock in energy costs.

If you still want to hedge on your own, I think the best alternative would be an option. You limit your risk with an option, and since the contracts are so large and so volatile, an option might be the only alternative for many farmers.

When you sell your grain, you can use your elevator just the same as you use the futures market. The same is true for energy futures. Your local cooperative, or oil company should be able to help you minimize your risks. They should offer you forward contracts and if nothing else, just start buying fuel tanks the next time we have diesel prices under 50 cents.

If you have a question you would like Betsy to answer in this column, send her an email at bjensen@nctc.mnscu.edu or call the MN Wheat office at 1-800-242-6118. You can also read Betsy’s column regularly on the Small Grains website at www.smallgrains.org